See also:
The Truth about the National Debt
The daily headlines and the TV news have been filled with reports
of the Herculean struggles between the Congress and President
Barack Obama over the Federal budgets for FY-2011 through FY-2013. This to-the-mat confrontation
is often threatening the unthinkable curtailment of "non-essential" Federal services. This bitter contest over the Federal budget is triggered by deepening concern over unprecedented deficits propelling the out-of-control growth of our astronomical national debt.
While the enormity of the national debt has been a popular whipping boy for as long as any of us can remember, can the owner/manager of the emerging business do much about this problem? How does the national debt really affect the owner/ manager of the emerging business? Isn't it much like worrying about the
hole in the ozone layer — obviously immensely important, but a very remote phenomena from my day-to-day concerns?
To understand how the national debt does affect the owner/manager of the emerging business, let's look at the numbers.
The national debt has now passed $12.3 trillion. (Noting how quickly this number has been increasing, the national debt first passed $7.0 trillion January 15, 2004, and then passed the $8.0 trillion mark October 18, 2005.) Consequently, on January 28, 2010, the United States Senate agreed to raise the legal limit on government borrowing to a record $14.3 trillion — an increrase $1.9 trillion or 13 percent. Raising the ceiling imposed on the national debt has now become a yawn-producing vote in the Congress. Because of the Treasury's financial legerdemain, the real number is frequently slightly above this ceiling.
The ratio of national debt to Gross Domestic Prouct (GDP) is a critical measurement. With the GDP currently $14.4 trillion, the national debt is fast-approaching the 90 percent tape — the ratio beyond which even Third World nations fear to tread.
Another critical ratio is the relationship between the Federal Budget and the national debt. The Federal Budget for FY-2011 currently under consideration is $3.8 trillion. This projects a deficit of $1.3 trillion or 9.0 percent of GDP. (The current deficit for FY-2010 is approximately $1.6 trillion.) The Administration's announced goal is to reduce the annual deficit to 3.0 percent of GDP — the long-term level economists believe is the highest sustainable.
Foreign governments and investors hold $3.43 trillion of this debt — approximately 24 percent of our GDP. The major creditors are the People's Republic of China ($798.9 billion), Japan ($751.5 billion), the United Kingdom ($249.3 billion), OPEC nations ($185.3 billion), and Caribbean banking centers ($171.7 billion); even Russia currently holds $118.0 billion of the US national debt.
Per capita, the national debt is more than $40,000 for every man, woman and child in the United States. The interest costs to service this debt is in excess of $383 billion a year (FY-2009) — approximately 20 percent of our total tax revenues. The interest costs are now more than the Federal government spends on homeland security, education, environment, housing, veterans programs, transportation and agriculture combined. Our annual appropriations for virtually all other Federal activities pale in contrast with the line item for Federal debt service.
So, how does this affect the owner/manager of the emerging business? In many ways!
First, approximately 20 cents out of every dollar of total tax revenue collected is immediately used merely to pay the burgeoning interest on the Federal debt. This is now surpassing the costs for our entire defense establishment, and it is exceeded only by the revenues needed to fund the total Medicare and Medicaid programs. (Ostensibly, Social Security is funded independently; about $4.0 trillion of the total debt are funds borrowed from the Social Security and Medicare surpluses.) We are held hostage by this horrendous debt; 20 cents is the ransom to be paid out of every dollar we must deliver in taxes.
Thus, absolutely no governmental services or benefits are delivered in return for 20 percent of our total Federal tax
bill. These are substantial funds that could most prudently be re-invested in the growth of our own business, but must be shoveled out instead simply to service the interest on the Federal debt. These substantial funds are diverted by Government fiat from potentially constructive economic investments in one's own enterprise into barren interest payments to the world of strangers who hold these obligations of the Treasury of the United States.
And secondly, the spending power of our present and potential customers would be increased dramatically if this sterile 20 percent of our total tax bill that is immediately swallowed by interest payments could only be freed for the purchase of goods and services. [Approximately half of all individual income taxes
are required to pay the interest on the Federal debt.] While some of the recipients of these interest payments may recycle these funds into the purchase of domestic goods and services from emerging businesses, much of the Federal debt is held by foreigners. A substantial portion of the income of the average family of four is being devoured to pay the interest on this "family debt" equivalent to $160,000. Thus, the Federal debt is a heavy drag on the economy, impeding job creation and entrepreneurial expansion as well as consumer spending on goods and services.
How does the national debt affect the owner/manager of the emerging business? It drains substantial funds out of the
business that could otherwise be invested in job creation and entrepreneurial expansion. And it drains substantial funds out of consumers' pockets that could otherwise be available for the
acquisition of goods and services. While it may not be observable, the national debt casts an oppressive pall upon the whole economy. And this burden inevitably impedes the growth and prosperity of the emerging business.
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